IMAX in Wonderland: Under the Radar

TORONTO ( TheStreet) -- Since first being featured as an Under the Radar stock Feb. 11, IMAX ( IMAX) has risen 27% after adding another smash hit, "Alice in Wonderland," to its list of releases.

IMAX's massive screens are becoming increasingly common and, with the introduction of 3D screenings, increasingly impressive. Analysts expect earnings to increase 722% in 2010 and another 11% in 2011 as 3-D becomes an integral part of major movie releases.

The IMAX format has been around for several years -- the first IMAX film was shown in the 1970s -- but the recent explosion of IMAX theaters has pushed the option into the forefront for moviegoers. The 70-foot screens and high-fidelity sound systems make the experience unlike any other. Blockbusters such as 20th Century Fox's (a division of News Corp. ( NWS)) "Avatar" are the best candidates for the medium's immersive experience. IMAX often helps kick earnings into overdrive.

The explosion of the theaters are a death knell for traditional film cameras. Companies like Eastman Kodak ( EK), which supply the film for traditional film cameras, have been slow to adapt to changes in the market as the industry has shifted toward digital media. Currently, IMAX cameras use Kodak film, though the company is set to introduce a digital 3D IMAX camera this year, which should cut down on production costs and make filming in IMAX more efficient, leading to even higher profitability. For Kodak, it's lights out.

For IMAX, the company's theaters are equipped with state-of-the-art sound and visual technologies that have the sole focus of maximizing the experience for the customer. The company, which had struggled to produce profits, is on an upward trajectory, generating record sales in the fourth quarter and using its cash reserves to wipe $74 million in debt off the books. The company still has about $20 million in cash and now has a positive equity position.

IMAX has deals with Walt Disney ( DIS), Fox, Warner Bros. (a division of Time Warner ( TWX)), Sony ( SNE), Paramount (a unit of Viacom ( VIA)) and DreamWorks ( DWA). Now that home televisions are headed down the path of 3D, it's hard to imagine that 3D won't be the norm in a few years.

Innovation is key for growth, and innovation is in no short supply at IMAX. While the stock may still carry a fair amount of risk, consider IMAX as a solid speculative bet on the future of entertainment.

-- Reported by David MacDougall in Boston.

Prior to joining TheStreet Ratings, David MacDougall was an analyst at Cambridge Associates, an investment consulting firm, where he worked with private equity and venture capital funds. He graduated cum laude from Northeastern University with a bachelor's degree in finance and is a Level III CFA candidate.